The Origins of Privatization

Been there, done that!


Moshe Adler
212 873 6803

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Will the debate about contracting out ever be resolved? Each side presents cases that support its point of view, but making policy decisions on the basis of case studies is difficult. And at any rate, aren't the failures of contracting out just points on the learning curve? Can't the system be perfected over time?

In fact, contracting out passed its developmental stage more than one hundred years ago, since this was the method by which American cities carried out their governmental business once they grew beyond their small village beginning. In nineteenth-century New York, for example, the City Charter itself mandated contracting out for all work done for the city. By the end of the 19th century contracting out was a mature system that was already as good as it could possibly be. And it was precisely then that governmental production came to America. The realization that every possible improvement to contracting out had been tried led city after city to declare its failure.

The head of the Chicago Board of Health declared in 1892, "there are few if any redeeming qualities attached [to the contract system]. No matter what guards are placed around it, the system remains vicious." Mayor Pingree of Detroit expressed the same view in 1895: "Most of our troubles can be traced to the temptations which are offered to city officials when franchises are sought by wealthy corporations, or contracts are to be let for public works." Practically all American cities discarded contracting out at that time and switched to governmental production.

Since all of this happened more than a hundred years ago, it is not surprising that our experience with contracting out has faded from public memory. Curiously, it is often the current advocates of contracting out who refer to its history. Unlike their predecessors, they know how to make contracting out competitive, they assert. But was the contracting out of the past indeed not competitive? Are there any devices that we can try today that were not tried in the 19th century? We can answer these questions by examining the contracting out of one service, street cleaning, in one city, New York, during the course of its final fifty nine years before it was discarded in 1881.


Why study street cleaning in New York City? First, no other governmental service could more easily be contracted out. Because the required equipment was inexpensive, many competitors vied for each contract. And the condition of the streets could be readily observed by all voters, making collusion between the city government and contractors to conceal poor performance virtually impossible. As a result, in no other service was it easier to hire a contractor by competitive bidding and to fire him if he failed to perform, a practice that the government in fact used repeatedly. If competition could ever tame the temptations that contracting out creates, in street cleaning in 19th century New York City would have been the best candidate.

Second, in 1826 the City Council decided to transfer street cleaning to government employees permanently, a decision that was to be reversed in 1840. Street cleaning provides, therefore, the unique opportunity to examine not only why contracting out was abandoned in favor of "big government," but also why governmental production was abandoned in favor of contracting out.

The picture that emerges from the record is that contracting out failed because enforcement failed. No technical reasons underlay these repeated failures. All the devices now being recommended to make enforcement effective were in place. No breakdown in values was apparent: many, perhaps most, government officials were upstanding and most people who wanted to do business with the City may well have been honest too. If enforcement did not take place it was because the city government lacked the courage to go beyond protests to impose meaningful penalties on the guilty. Every breach of contract brought about a study of how to fix the system, but rarely did any bring about the punishment of the corrupt. This inaction, which cannot be explained either by a profit motive or by moral feebleness, may be impossible to fix.

After each failure of a contract the cleaning of the streets was passed to city employees as a stopgap measure. During these intervals, as well as in the period 1826-1840, during which city employees had the responsibility for street cleaning, complaints about the service simply disappeared. There were complaints, however, about the cost of governmental production, which was much higher than the cost of the contracts (which failed).

Temptations existed also in governmental production; but these were very different in their nature. The head of a city department could not enrich himself by delivering shoddy quality services, which private contractors often did. Even when corruption in governmental production was present, its damaging effects were judged negligible in comparison to the damages caused by contracting out.


Contemporary economists identify several measures that are necessary to make contracting out competitive (Robert Poole and Philip Fixler, 1987; John Marlin, 1984). All of these measures were in force in New York City before 1826:

1. Contracts should be granted by a process of competitive bidding. The hiring of contractors during this period was the responsibility of the Finance Committee. The committee advertised requests for sealed bids, and contracts should have been awarded to the lowest bidders.

2. The service area should be divided to different districts, each governed by a separate contract. The city was divided into several cleaning districts, each governed by a separate contract. In 1823-1825 there were two cleaning districts, and this division continued until May 1825 when the Street Committee suggested that the failure of the contractors to do their job was due to their small number. The city was then divided into 9 cleaning districts that coincided with the 9 electoral districts. When the number of wards increased to 11 in December 1825, the number of cleaning districts was increased without discussion.

3. The duration of the contract should not be long. The contracts were for one year.

4. Contracts should not be renewed without new bids. There was never a provision for signing contracts, old or new, except by competitive bidding.

5. The city should retain the ability to quickly take over the service from the contractor. Replacing a derelict contractor was easy to do. The implements necessary for street cleaning, horses, carts and shovels, were readily available, and the replacement of derelict contractors could be done almost instantly. This wasn't merely a theoretical possibility. In the transition from two to nine contractors in 1825, for instance, not a pressing situation at all, the time from advertising for the new contracts to the contractors starting their work was less than two weeks. In 1826, when the performance of a contractor became too egregious, we find that the city actually hired other contractors to do the job "without delay." In no case had the Council ever expressed any hesitancy to terminate a contract because replacing the contractor would be difficult.

6. Contractors should deposit performance bonds and penalties should be set for non-performance. All contractors had to post performance bonds and the contracts specified penalties for non-performance. To be effective, however, penalties require that the duties of the contractors be well defined. And indeed they were. Not only do we find the duties of the contractors spelled out in the record, including the frequency of the cleaning, the material that had to be removed and which sites could be used as dumps , but when complaints were voiced of contractors' dereliction the accusation was rarely disputed .

What was missing during this period was a legal prohibition of self-dealing, an omission that was rectified when the City got a new Charter in 1829. Nevertheless, it appears that none of the officials in charge of street cleaning engaged in self-dealing in the years 1823-1826: First, any self-dealing would have been likely to surface in the record, since the City Council did not shy away from exposing self-dealing when this occurred in other departments. Most importantly, though, is the fact that it was the Street Cleaning Committee itself, the body that hired the contractors, that declared in 1825 that as a rule, the contractors failed to do their job. The Committee would have probably not made such a statement had its own members been engaged in open self-dealing, even if such practice was legal.

One hundred and seventy four years ago, in April of 1825, the Street Cleaning Committee expressed exasperation about ever being able to make contracting out work, because none of the attempted fixes had worked:

It is well known that various plans have been devised, and various measures pursued by former Boards, to accomplish that desirable object: Clean & Wholesome Streets. How far they have succeeded, past experience can testify...and how far it would be wise and prudent for the this Board to pursue them further is submitted (sic). Your Committee would however offer for consideration the following...Heretofore...the street manure was a subject of revenue...[it was] removed only when that interest was served, notwithstanding the Citizens duly and faithfully swept and heaped the manure as by law they were directed.

A few days later the Committee recommended discarding contracting out altogether:

[I]t seems generally admitted that the old system of removing the manure and rubbish from the streets by contractors ought not to be revived...the contracting system has not given satisfaction to the public.

And a Special Committee sealed the fate of contracting out for the next fourteen years in 1826:

"[T}he present system of cleaning streets by contract will always prove ineffectual in as much as that private interest is too frequently at variance with public convenience and therefore ought to be abandoned.

The "variance" of interests that the committee saw as the core of the problem exists in every economic exchange. The purpose of a contract is precisely to eliminate this variance, and it achieves this goal by specifying penalties for breach. The difference between contracts between private parties and contracts in which the government is one of the parties was, however, that the government seldom insisted on collecting the damages to which it was entitled when a breach occurred. Fines were occasionally levied , but this was the exception rather than the rule. In one case when a complaint was voiced the contractor was instructed to "clean his act," but no fine was issued. In another case the contractors were paid even though the City was forced to hire its own employees to clean the streets.

There was only one case in which enforcement did conform to the language of the contract, and this case is particularly interesting. A contractor named Jacob Rapelyea and his partner were fined because they left a large quantity of manure on the street and did not remove it even after repeated requests to do so. Rapelyea and his partner petitioned the Board to cancel the fine, arguing that they did not know they could not use the street as a dump, but the Police Committee stood firm:

The Committee cannot believe the petitioners were ignorant of having violated the Law by so great an encumbrance.

Had it ended there, this chain of events might have indicated a well functioning contracting out system. But it didn't. It was during the same session that the City Council implemented a change from contracting out to governmental production. Jacob Rapelyea was appointed the new deputy Superintendent of Streets. When three years later it was discovered that he stole from the department, the Council expressed great disillusionment.


On April 4, 1826, New York City switched from street cleaning by contractors to street cleaning by government employees, and the concern about the cleanliness of the streets that had preoccupied city council meetings persistently disappeared overnight. A major overhaul to the system of street cleaning was instituted in 1832, and to justify it the City Council argued that the streets of New York were not as clean as they could be and that "the city of New York, the commercial emporium of the western world, with her ample means, should never be behind her sister cities [Boston and Philadelphia] in the arrangement of her domestic comforts. This, however, was not a criticism of governmental production but a call to sweep the streets by government employees instead of leaving this task to the residents themselves. Other improvements were suggested then, but governmental production itself was not challenged.

But governmental production was not free from problems. When Rapelyea retired in 1829 it was discovered that he had not passed to the Comptroller $2,482 of the $56,028 that he had received for manure during his tenure, from May of 1825, to February 1, 1829. (The manure had been sold to farmers.) This theft was not the last. In 1831 it was discovered that Rapelyea's successor, Charles Dobbs, did not pass to the city $3,157.40 which he had collected for manure, and the matter was referred to the City Counsel. But the thefts were small.

Nevertheless it appears that more manure was collected under governmental street cleaning than under contracting out. When the board first switched to governmental street cleaning its estimate for receipts from the sale of manure, based on past sales by contractors, was $15,697. But during the first year of street cleaning by governmental employees the receipts from the collection of manure totaled $22,000. It is of course possible that more manure was produced than anticipated in 1826, and/or that the price of manure was higher then. Whatever the reason, the increase in sales was substantial.

One should indeed expect greater diligence of the city employees. A contractor could reduce his costs by not hiring workers and not collecting the manure. But under governmental production the incentives of a corrupt superintendent were exactly the opposite. By maximizing the receipts from the collection of manure he could hide his thefts more easily.

Governmental production was also subject to patronage. The selection of the street inspector of each ward was the responsibility of the alderman and assistant aldermen of that ward, and they used their discretion to their advantage. Since the inspectors were the ones who hired the street cleaners, the political favoritism involved extended well beyond the inspectors themselves.

Patronage appeared also in the form of positions that required very little, and sometimes no work at all, from those who held them. The same positions existed both under contracting out and under governmental production, though. The most significant patronage, and the one that raised the strongest objection by the city's elite, however, came in the form of high wages to city employees. In 1845 the Street Committee explained the advantage of contracting out:

As every ... movement [to contract out] contemplates economy, its effects must be to diminish the wages of the laborers, or compel them to do more work for the same wages.

The Committee made this statement to explain why in 1844 the contractors encountered difficulties in finding workers. The line regarding wages was most clearly drawn in 1864. To force low wages, the City Council set a ceiling of $300,000 for the street cleaning contract. No bids were submitted under this sum, however, and the Board of Health was forced to hire its own workers, at the going wage. But not everybody was willing to retreat so easily on the wage front. A Citizen Association, headed by the judge James Whiting, demanded that the workers simply not be paid. In a hearing before the State Senate in 1865 Whiting challenged Mayor Godfrey Gunther:

Whiting: Didn't I advise you to stand up manfully and not sign [the wage bill]?
Gunther: Yes Sir.

The Mayor signed nevertheless.

The city council sided with the Board of Health in this dispute, perhaps because the council recognized the need to clean the streets even if that meant that the city had to hire it own employees, or because a member of the Citizen Association had himself an interest in a contract. Also, a political consideration-the fact that the workers and their families were voters-may have been decisive.


In 1839 the Board of Aldermen appointed a "Special Committee to Investigate the Causes for the Increase in City Expenditures," and it recommended "an entirely new [emphasis added] system of the government of this branch of the public service." No complaints were voiced about the quality of the service that the government employees provided, but the committee felt certain that it could find cheaper contracting out services.

little doubt can be entertained that individuals would be found willing to clean the streets and remove the manure for much less than is now paid for the same service.

The "new system" was the system that failed before 1826. Since contracting out yielded consistently unacceptable low quality, it is unclear what benchmark the committee used to deem governmental production too expensive.

The committee identified an additional source of cost savings in contracting out: The positions of Health Wardens and Dock Masters could be eliminated and their duties added to the duties of the Street Inspectors. But these positions existed regardless of cleaned the streets of the city,, and the Council could have eliminated them simply by not funding them.

Even as the Special Committee was advocating the change to contracting-out street cleaning, it acknowledged problems in other departments. The lighting-oil that the contractors supplied, for instance, was of lower quality than the sample that they had presented at the time that contract was signed. In the Docks and Pier department contractors colluded with city officials to defraud the city, while in the almshouse, in spite of the charter of 1829 that prohibited self-dealing, the commissioners were also the suppliers. And regarding street paving, the special committee felt compelled to recommend that contracts be awarded by bidding, even though this was already the required practice. However, the aldermen advocated contracting out despite such problems and even shielded the corrupt parties.

No sooner had it been decided to switch to contracting out than a disagreement, apparently about how to divide the spoils, delayed implementation. The Street Cleaning Committee wanted the whole city to constitute just one cleaning district, and the Council wanted as many districts as electoral wards. The motives of the different parties are not hard to understand. With electoral-wards districts each Aldermen and each Assistant Aldermen would have had a role in selecting the contractor for their district; if the whole city constituted just one district, only the Street Cleaning Committee would have been in charge. A side-agreement must have been reached, because in 1843 a new contract, with just one contractor, was signed.

Evidence that clean streets were not the council's chief concern comes also from the changes that the council made to the contract which was first drafted in 1841. That contract called on the Street Inspector to clean the streets at a contractor's expense if they determined that the contractor had failed to do his job. This provision was removed in 1843 on the grounds that it would place the contractor entirely at the mercy of the agents of the Corporation, and are upon their face obviously inequitable and oppressive.

Contractors still had to post a good-performance bond, but without detailing who would determine the quality of performance this provision was meaningless. The mayor vetoed the contract, presumably because of this and because he objected to having just one contractor, but his veto was overridden.


After a process of competitive bidding a new contract was signed on January 18, 1843. The cost of the contract, $64,500, was substantially lower than the cost of street cleaning under government production, $92,128 in 1842. Less than six month later, on May 29, 1843, the Committee on Laws presented the council with the following resolution:

Resolved that the said contract having [sic.] failed to secure the removing of the filth and dirt from the streets and public places, which is essential to the public health.

There was no mention of penalizing the contractors and subsequently they were paid $10,000 for losing their contract.

Street cleaning was returned to city employees as a stop-gap measure, but the failure of the contract of 1843 did not prevent an attack on the cost of governmental production. The Comptroller used the contract that had just failed as a benchmark, having "no doubt" that with a new contract "the streets will be swept and cleaned at a much lower rate than even the later [last] contract, and entirely to the satisfaction of our citizens."

A new contract was signed in October of 1844, correcting all the deficiencies of the contract of 1843. It called for six cleaning districts, with the choice of contractors to be made by the Mayor and the Finance Committee. Since the Mayor vetoed the contract the previous contract that subsequently failed, this was clearly an important measure. More importantly, the Street Inspectors were ordered to clean streets that they themselves had determined were in a state of neglect at the contractor's expense. In addition, no payment would be made without a good-performance certification by the Street Inspector, and the contractors would be liable for damages.

The total annual cost for all the contracts together was $45,437, half the cost of cleaning the streets with city employees, and even lower than the cost under the previous contract. Yet even with the supposedly new safeguards, the contractors failed to live up to their contract from the very start. In February of 1845 the Finance Committee allocated $5,000 "to meet any contingencies that may occur in the non-performance of said contract" and in March the Street Cleaning Committee issued a report that stated

It must be admitted that the Corporation have not realized all the advantages they anticipated from the employment of Street Contractors.

Again the contractors were not penalized. Instead they were relieved from their obligation to ship the collected garbage out of town, a responsibility which the city assumed. But even this did not make a difference. On May 13 the contract was annulled.

After each failure of contracting out the legislature invariably felt political pressure to provide clean streets, and it seems that the cost of this was known to be double the price of a contract. When at the end of June the Comptroller appropriated $50,000 for street cleaning by government employees, there was no dissent. The trade-off between expensive governmental production with clean streets and cheap contracting-out with filthy streets was presented by the new Mayor, H. F. Havemeyer, on the day that the contract was annulled:

The system of cleaning them [the streets] by men employed at day's work by the Corporation, was condemned as too expensive; while the system of cleaning them by contract has, at least as far as the experience of the last six months is a test, proved inefficient.


Street cleaning was again done by city employees, but in 1848 Mayor Havemeyer, forgetting the tradeoff that he himself had articulated, expressed unhappiness with its cost. A new contract was signed in May of 1848, and the city was divided into six cleaning districts. Also, the magic cure that Mayor Havemeyer advocated was employed: No contractor would be paid unless the Superintendent of Streets and the Aldermen and Assistant Aldermen of the district all certified in writing that the streets were adequately cleaned. Nevertheless, in his annual address of May 1849, the new Mayor, Caleb Woodhull evaluated the performance of this round of contracting out:

The system of cleaning the streets by contract has signally failed of fulfilling public expectations, and I assume that it is no longer entitled to public favor. At first it seemed to promise important advantages, both as to economy and efficiency, but in its operation it has proved entirely inadequate to accomplish either of these desired results...

I would therefore recommend an abandonment, as soon as practicable, of the contract system, and the entrusting of the entire business to the Superintendent of Streets, under the supervision of the proper department.

In 1849 street cleaning was returned to government employees , and

in 1851 and 1852 Mayor Woodhull praised the change, as did his successor, Jacob Westerverlt, in 1853. Nevertheless street cleaning was returned to contractors in 1853, when the Comptroller, Azariah Flagg, insisted on enforcing the provision of the City Charter that all work for the city be done by contract.

The pattern of failed contracting out followed by governmental production which was then followed by failed contracting out continued until 1881, when permanent governmental production came into place. Many of the details are interesting: They include a Mayor and a contractor colluding in an intricate conspiracy to set-up a City Inspector, and in what was perhaps the mother of all reforms, the transfer of the responsibility for contracting out to the Police Commissioner. For the sake of brevity only the contract of 1853 will be recounted here, since it shows how corruption can overtake contracting out even when almost everybody involved is upstanding.


A Charter Amendment in 1849 made the commissioner of street cleaning an elected official and, therefore, independent of the Common Council. This did not ensure that contracting out worked, but for the first time the person in charge of street cleaning was free to speak his mind. And because of this, starting with the contract of 1853 we know much more about how the breakdown of contracting actually occurred.

The new contract started on November 22 , and sometime before December 10 the Commissioner of Street Cleaning, Henry Arcularius, notified Comptroller Flagg that the contractors were not living up to their contracts and should not be paid. Flagg paid them anyway and in response, on January 18, 1853, the Common Council passed two resolutions: one ordered the Comptroller not to make any further payments to the contractors and the other ordered him to explain why he had made any payments without the Commissioner's certification. On the morning of January 18th, just hours before the council voted to prohibit such payments, the Comptroller made an additional payment to the contractors. His responses to the Council's query, delivered in February of 1854, were equally audacious: Commissioner Arcularius had hired workers to clean the streets at the derelict contractors' expense, and had presented Flagg with a bill. Flagg paid the bill and the contractors, he said, because he had taken Arcularius's bill as "evidence that the contractors had done their duty according to the terms of their contract."

Flagg admitted having known that he wasn't authorized to make the payments since he had received official complaints "of neglect on the part of the contractors, or some of them." Furthermore, Flagg informed the contractors that his payment to them had no appropriation in the budget because his payments to the commissioner had exhausted the street-cleaning appropriation. But according to Flagg the contractors could not be expected to clean the streets for the money that was agreed on because the city residents had misbehaved by dumping coal ashes in gutters rather than garbage boxes, thus rendering the manure valueless to farmers and therefore to the contractors. This improper disposing and the neglect by construction contractors to clean after themselves were illegal, Flagg pointed out, yet the city had not enforced its own laws to stop them.

Whether the contractors' behavior was justified or not, however, the Comptroller had broken the law that was the foundation on which the whole edifice of contracting out was built, and the council had exposed his deeds. Yet the comptroller was not prosecuted; instead, Arcularius resigned. The contractors were not penalized either. The Street Cleaning Committee considered requiring that the contractors pay damages, in this case the difference between what the city actually ended up paying and the sum contracted for, but after weighing the realities of collecting from contractors it decided to not even try.

To contracting out itself, the committee gave a clean bill of health and it decided "to relet the work by new contracts, with somewhat different conditions." The changes the Committee thought would make contracting out work were made in a new contract that started on July 17, 1854. By August 12 the new Commissioner of Street Cleaning notified Flagg that two of the contractors had not performed their duties. Once again the Comptroller paid them anyway.

Flagg continued in his office undisturbed until the end of 1858. No penalties were issued in any of the following years even though contracting out did not fare any better after Flagg had left office.


Although corruption was tolerated in the nineteenth century and enforcement was lax, one might imagine that surely things are different today. But consider the following.

In 1995 New York City signed a contract with a private company, US Servis, to provide a billing system for the city's health maintenance organization Metro Plus. The contractor failed to install and maintain the system, and after a year of non-performance the New York City Health and Hospital Corporation in July of 1996 considered terminating the contract or at least stopping the payments until the contractor fulfilled its obligations. At this point, however, a non-paid aide close to the Mayor--someone who sat in on cabinet meetings and who was a paid lobbyist for US Servis--intervened. According to the vice president of the City Health and Hospital Corporation the mayor's aide explained "how important this was to the mayor," and the plan to terminate the contractor was dropped. Instead the contractor was immediately paid an additional $2.11 million plus another $3.5 million eight months later, even though the contractor still had not provides the service. The Hospital Corporation's own vice chairman of the board "didn't understand how [US Servis] received $3.5 million for not doing their job," but was powerless to stop the payment. In February 1997 the President of the corporation declared that "it would take almost a miracle not to default on the company." But the mayor's aide intervened again. Interestingly, the matter was never pursued by the city newspapers although the story was initially covered by the New York Times. It can be surmised that US Servis was never penalized for its breach of contract. The year in which this scandal was disclosed, 1997, was an election year, and the contract with US Servis wasn't the only corruption scandal that the city newspapers exposed.

In March 1997 the New York times reported that penalties were lightened for two contractors who had failed to fulfill their contracts. In one case a construction company that was involved in the collapse of a Housing Authority building was permitted to continue to work for the city after intervention by the same mayoral aide who, as it later became evident, lobbied in behalf of US Servis. The authority's staff demanded that the contractor be held in default of its contract, which would have permanently barred it from city contracts.

In a second case a construction contractor performed such shoddy work in a school renovation project that the School Construction Authority tried to terminate its contract "for cause." This classification would have not only affected the penalties for that contract, but also hampered the contractors effort to get future contracts as well. The same mayoral aide intervened also in this case, and instead of paying a fine the contractor received an additional payment, leaving it with $7 million of the $8 million contract. The termination was classified as "for convenience" instead of the potent "for cause." The school's students were not so lucky. Another contractor had to be hired to do the job, and the school opened a year late.

The list does not end here. In March of 1996 the New York Times reported that a $43 million contract to check the eligibility of welfare recipients was awarded by the mayor's top aide (a paid aide this time) to a company that submitted the highest bid ($8 million over the next highest bid) and was ranked only second by the city evaluation committee. The winning contractor did offer one advantage: it hired several previous city officials and the son of a close friend of the mayor. In a move that is reminiscent of nineteenth century mayors, Mayor Giuliani declared that his administration would move to bar any and all lobbying of city agencies. To his chagrin he later had to report that he had discovered, after examining the issue, that such a ban would be unconstitutional.

A month later the New York Times reported that a sub-contractor who had been barred from doing business in the State for earlier violations, had been hired to repair fire houses.

If politics had worked the way the proponents of contracting out claim it does, Mayor Giuliani's opponent in the elections of 1997, Ruth Messinger, would have made corruption an election theme. The mayor would have been voted out of office, and a strong message would have been sent to all dishonest contractors and politicians who support them. Even though Messinger's campaign, by all accounts lacked a cause, she a did not turn corruption in the Mayor's office into an election issue, and to this day the Mayor is still perceived as "Mr. Clean." In terms of moral frailties, the end of the current century is remarkably similar to the beginning of the previous one. And as for contracting out, one hundred years later it still remains true that "no matter what guards are placed around it, the system remains vicious."


Contracting out is often touted as a device to cut costs. As this study has shown, in the sixty years before New York City discarded it, the cost of contracting out was about half the cost of governmental production. It was discarded not because it wasn't cheap, but because it wasn't good.

Quality assurance in the case of street cleaning is easy, since all citizens can readily assess whether the streets are clean or not. But how can a citizen know whether the pavement on a street is as thick as the contract called for? Or whether the water pipes that are laid under the city have lasted without leaks for as long a period as the contract specified? Quality assurance is infinitely more difficult when citizens must rely on government officials to assure them that the contractors did as good a job as they were paid for. There is no one to monitor the monitor.

The failure of contracting out has not been due to lack of knowledge about how to do it right, but to public nature of government. Contracting out creates a conflict of interest for the government officials who are in charge of it, and this fact cannot be changed. Americans knew this at least 175 years ago. But it took another 60 years, during which the quality of governmental services was abysmally low, to shake the stranglehold that the contractors and the politicians who colluded with them had over the political process. This experience with contracting out--and its demise--are important parts of this country's legacy.